You’ve saved as much as you possibly could for the next chapter in life – your retirement. But the question you need to ask yourself is, “have I saved enough?” With 10,000 baby boomers reaching the age of 65 every day and living longer, it may be worth taking a closer look to ensure your retirement assets will fund your longevity.

 

The traditional approach to retirement planning – savings, Social Security and pension plans – is likely not enough for the more than 55 percent of Americans whose primary asset is their home equity. A reverse mortgage loan will help  you live out your golden years in comfort and security.

The Advantages of a Reverse Mortgage Loan

Although traditional mortgages are more common, reverse mortgage loans have advantages that can help senior borrowers in ways that traditional loans cannot.  Reverse mortgage loans are unique, with features designed specifically to cater to the special demographic of seniors ages 62 years and older.  The following are a few advantages that reverse mortgage loans offer over traditional mortgage loans:

 

Repayment is deferred

One of the greatest advantages that a reverse mortgage has over a traditional mortgage is that repayment of the loan is deferred.  This means that while traditional loans require borrowers to make a payment every month for a number of years, with a reverse mortgage there are no monthly mortgage payments.

 

This is beneficial for senior homeowners because deferring repayment allows borrowers on a fixed income to have more control over their finances.  Instead of paying for a monthly mortgage, those funds are freed up to use on anything the borrower wishes, such as paying for daily expenses.  Borrowers may continue to defer repayment for the life of the loan, and the loan only becomes due and payable if the borrower moves away, passes away, sells the home or defaults under loan terms.  These terms include the payment of taxes, insurance and home maintenance as described above.

 

Added Federal Insurance Protections

The same FHA mortgage insurance that protects a lender from borrower default is also the same insurance that will protect a borrower as well.  The reverse mortgage insurance guarantees the following safeguards:

Even if the lender were to go out of business, the government will cover continued access to the funds for which the borrower signed up.
Reverse mortgages are non-recourse loans, which means that lenders do not have access to any assets other than the home to repay the loan, thus there is no personal liability to the borrower or their heirs

 

Borrowers are also guaranteed never to owe more than the value of the house when sold.
In addition, if heirs prefer to keep the home as an inheritance, they only have to repay 95% of loan.

Traditional mortgages do not have these safeguards. They are typically recourse loans, meaning you are personally liable for the loan, and you are not protected if the loan balance is higher than your home value.

 

As a Non-Recourse Loan, Heirs are Protected

After a borrower passes, heirs take over the responsibility of repaying the remaining reverse mortgage loan balance.  Typically, heirs will simply sell the home and use the proceeds to repay the entire loan.  Proceeds from the sale of the home will always cover the entire repayment amount, whether or not the loan balance has exceeded it. As a non-recourse loan, no other assets of heirs can be taken by lenders to repay the reverse mortgage

 

Line of Credit Growth

When choosing the line of credit disbursement option, a reverse mortgage loan offers a feature that a traditional mortgage loan does not.  The line of credit has an increasing growth rate, making more funds available for the borrower to access as time progresses.  With a reverse mortgage, the unused line of credit grows at the same rate the borrower is paying on the used credit, whereas with a traditional home equity line of credit, the credit line stays the same amount as what a borrower had originally signed up with.

Rolled-In Closing Costs and Fees

Another attractive feature of a reverse mortgage is being able to finance many of the costs into the loan amount.  Some traditional mortgage loans may offer to finance fees as well, but reverse mortgage loans have the advantage of combining the feature of deferred repayment with this feature of rolled-in costs.

 

For homeowners concerned with immediate costs, this could minimize the amount of out-of-pocket and up-front cash needed from the borrower, both before and after loan closing. Fees that may be rolled into the reverse mortgage loan balance may include the loan origination fee, servicing fee, and other closing costs.

 

Reverse Mortgage Prequalification Form

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